The first three months of 2022 find businesses struggling with persistent serious inflation problems, persistent supply chain problems, and the third year of going through the pandemic. These are not just business concerns but also one of the biggest challenges for tax planning in 2022.
The negligible efforts by the Democrats to revive the tax reform only cause further problems to the planning unpredictability. After the beginning of discussions over the Build a Back Better platform of Joe Biden fell before the holidays, several tax executives relaxed, depending on the status quo to overcome. Well, it is a mistake.
Major developments still can propel significant tax planning difficulties and chances. For one, Democrats are still trying to rotate to a smaller part of their plan, which could lead to huge tax initiatives. Even without the legislation, tax laws are still developing in major ways.
Tax Planning In 2022
Changes in the past, such as research cost recovery, revenue recognition, and interest deductions, are only now coking their effects. Huge global tax agreements will soon start influencing multinational companies. Furthermore, external elements such as supply chain disruption, remote work, economic volatility, and inflation have considerable tax implications.
Taxpayers should be actively tackling these problems, not just waiting and watching. A current Grant Thornton tax executives survey found that about 50% of the tax executives are re-evaluating their tax planning for 2022 based on the recent events or are changing their strategies in response to the legislation. Some of the considerations for investors and businesses incorporate.
1. Debt Restructuring
Several companies are re-evaluating their debt planning as interest rates and inflation rise. The London Interbank Offered Rate’s phase-out might also push several companies to adjust their debt instruments. The reconstitution of debt can lead to major tax consequences, and a new law change that stiffens the limit on the interest deduction under the Section 163(j) could influence the plan of action.
2. R&E Amortization
New regulations for amortizing the R&E costs are in effect for 2022. Even though there is still some hope for a retroactive fix, the outcomes and timings are not definite. Businesses in the sector with heavy investments in research might have to start the difficult task of recognizing the affected costs during the first three months of financial statements, and approximate tax payments are due.
3. International Planning
The Biden government assisted some major global tax agreements. Even if the domestic legislation falls, the international tax developments will still affect multinational tax planning. The IRS recently made public the essential regulations that will affect foreign tax credit planning.
4. Local And State Tax Upheaval
The transformation to hybrid and remote working has led to local or state income tax challenges. Many states provided non-permanent administrative relief and guidance regarding employee withholding and reporting rules. With this guidance set to expire, businesses should keep an eye on how states handle hybrid and remote working arrangements.
Businesses should also consider how shifting arrangements can affect the tax treatment of commuting and travel costs and payments for employee expenses related to working from home.
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5. Revenue Recognition
The Tax Cuts and Jobs Act significantly altered how audited businesses recognize revenue for tax purposes. Final regulations must now be applied to tax planning 2021 returns, so businesses must act quickly to understand and apply the rules.
6. Refunds For R&D Credits
The IRS’s new documentation requirements for R&D credit refund claims could burden taxpayers in a major way. Businesses that want to amend their returns to claim R&D credits for previous years should assess their technique for substantiating the credit and computing as soon as possible to ensure they can supply the necessary information for every business component.
7. Tax Accounting Issues
Changes in the law regarding R&E amortization and interest deduction limitations might significantly impact enterprises that make considerable research investments or are deeply leveraged businesses. As early as the first three months of tax planning 2022, certain businesses must assess the potential impact on effective tax rates and deferred tax assets.
Companies may also need to modify their systems, internal controls, and procedures to account for these changes and the new financial statement disclosure standards regarding government support.
8. Staffing Problems
Several sectors are facing problems with the worker shortage; the tax department also feels its effects. It is the perfect time to check how analytics and data transformation can assist in making the workflow easier and swifter. You can measure the differentiation between automated data transformation and manual data preparation in hours to seconds.
9. Pass-Through Tax Compliance
For tax planning 2022, the new reporting demands may cause partnership returns this 2022. Schedules K2 & K3 will need S corporations and partnerships to report major new international tax data. However, there is some relief for the transition companies of 2021 returns.
10. Gift And Estate Tax Chances
Even while current legislative efforts to crack down on transfer tax planning are on hold, there is still a need to move rapidly. The capacity of assets to increase value faster than the IRS-mandated interest rates is a key component of many estates and gift tax planning 2022 methods. Interest rates and some assets’ values are projected to rise shortly due to inflation.
Several of the issues call for prompt action. In particular, those that must be addressed on the 2021 tax returns, the first three months of interim financial statements, and tax planning 2022 estimated tax payments.
Tax planning 2022 came with many new rules and regulations, and along with it came new challenges for businesses. The inflation, covid-19, all made the process much more difficult. The experts at HRMB Associates LLC can help you work through the whole process and even provide you with all the assistance and solutions you may need. We offer complete accounting and financial services. To know more, head over to our website and get in touch with us.